Is Your Chapter 13 Bankruptcy Plan Feasible?
Is Your Chapter 13 Bankruptcy Plan Feasible?
Before the court confirms your chapter 13 plan, you will have to pass what is commonly referred to in bankruptcy law as the “feasibility” test. This isn’t really a test, but the court will look at whether or not the information we provide in the bankruptcy forms and schedules show enough income so that you can make the proposed payments. Whether it is the monthly payments you are proposing or a lump sum payment to be paid at the end of the plan, we should be able to show that the plan can be reasonably completed with the resources we report in the schedules.
The court will also want to make sure that the necessities of living, including things such as medical expenses, gas, and transportation are accounted for in your budget. Even if you will be receiving some form of assistance to pay for groceries or you receive Medicaid, we will want to make sure and include how these necessities will be covered during your plan period. The other thing we recommend to demonstrate that your plan will pass the “feasibility test” is that you begin making plan payments even before the confirmation hearing. By doing so, you can demonstrate directly to the court that you are able to make the proposed payments.
How long will my payment plan be?
There is no minimum time frame for a chapter 13 plan, according to the bankruptcy laws. The maximum for an individual or couple whose income is more than the state median income is 5 years. For those below the median state income, the maximum is 3 years. It is also possible, the way the law is written, for the court to approve a longer plan if there is a good reason to do so. It may be that you need additional time to complete the payment plan or to get up to date on mortgage payments. This is often referred to as “curing a default.”
Dealing with Your Home in Chapter 13
For many people, the main purpose of filing chapter 13 is to save their house. If you are behind on your payments, a chapter 13 plan can be set up so that you can catch up on overdue payments over the 3 to 5 year payment plan. There may be times, however, when it is necessary to sell your home while in chapter 13 bankruptcy. If this becomes necessary, it may be important to obtain a court order giving you permission to sell your home. One reason to sell during a chapter 13 would be if you have built up a large amount of equity that would be lost if the bank foreclosed. It is also likely that you will need to continue to make the plan payments for your mortgage until the sale of the house.
Another advantage of chapter 13, is that you are allowed to keep and use any property that is part of the bankruptcy estate, whether it is exempt or non-exempt. If you had the right to sell, or lease the property prior to filing bankruptcy, then you would have those same rights during your payment plan. It is possible for the court to put certain conditions on the use of your property. For example, you could be required to carry collision insurance for a car that was used as collateral, but otherwise you are free to use your property as you see fit.
Adequate Protection Payments for Personal Property
When you have personal property that will depreciate during the payment period, you may be required to make adequate protection payments. These payments are often used when there is a car loan. For example, you have a car loan and will be paying your car payments through your chapter 13 plan. However, there is an expected time delay between the time you file bankruptcy and the time your plan is confirmed. During those months, you continue to drive the car and it will go down in value. In order to protect your creditor from that loss in value, you will make payments to protect the creditor against that loss of value.
The Impact of Chapter 13 on Leases
If you have a car lease or residential lease, you can choose to reject the lease as part of your payment plan. So if you decide you will not be keeping a car and paying the lease during and through your payment plan, the company that leased you the car takes back possession of the car and can then claim monetary “damages” for your failure to complete the terms of the lease. Depending on the type of lease, this claim for money owed on a lease you didn’t complete might become a secured or an unsecured debt and included with all other creditors in that category. The trustee also has the right to accept or reject the lease. These are often referred to as “executory contracts.”
Prior Bankruptcies and Chapter 13
You cannot get a discharge in chapter 13 if you previously received a bankruptcy discharge (under chapter 7, 11, or 12) within four years of submitting your chapter 13 paperwork. The other restriction is you cannot have received a chapter 13 discharge within the last 2 years.
Even if you are not eligible for a discharge because your previous discharge was within the time restrictions, there are times when filing a chapter 13 bankruptcy, even if you can’t receive a discharge is helpful. If you need to consider this option, I would encourage you to discuss it with our attorneys, even if you don’t meet the strict requirements to receive a discharge. We will look at the specific circumstances in your case to determine if this would be helpful. We will also make sure that filing even, if you aren’t eligible for discharge, does not possibly raise the question of abuse of the bankruptcy laws.
However, you cannot file a chapter 13 case if you have a chapter 7 that has not been completed. You must wait until you receive a discharge even if the case is not officially closed. There are many possibilities to consider when you’ve previously filed or received a discharge and you need to consider another bankruptcy filing.
Chapter 13 Plan Confirmation
Once your chapter 13 plan has been confirmed, everyone involved in the bankruptcy (you, your creditors, and the trustee) are all bound by the plan. It may be, for example, that your plan is confirmed and you have set up a payment plan for a mortgage that is in default. By the end of the payment plan, you have caught up on your mortgage (“cured” the default). Your mortgage company or bank cannot come back later and tack on additional charges from the default.
Even after your bankruptcy, it can be important to pay close attention to your credit reports, mortgage and credit card statements. If the company makes an attempt to add charges after the completion of the plan and your discharge, you have the right to take legal action against the creditor.
Is Your Chapter 13 Bankruptcy Plan Feasible?
